VAT on Holiday Cottage Rents

I run a sole trader business with a turnover in excess of the VAT threshold 68,000. My wife has now retired and I am looking to purchase a holiday cottage. It is likely that I can rent the property out for 450 per week for approx 20 weeks from April to September, and use it out of season for weekend breaks with my wife. Should we consider anything before purchasing?

1st August 2009

Assuming that you rent the property for 70 days or more, and it is available to be let for 140 days in any one tax year, it will be taxed as a furnished holiday let in the 2009/10 tax year. This has favourable tax treatment for income tax purposes if you make a loss.  It can also be beneficial when the property is sold, however this relief will no longer available from 6 April 2010 due to a recent change in the law.

Landlords often forget that holiday accommodation is standard rated for VAT.  Even with the total rents of 7,000 being well below the VAT threshold, as you are the sole owner of the property you will need to charge VAT on the rents, as you also operate another VAT registered business.

One way to avoid having to charge VAT this year is to purchase the accommodation as a joint venture with your wife.  This would have the benefit of utilising some of your wife's personal allowance for the year.  Assuming that you do not operate another VAT registered partnership with your wife, it would also negate the need to charge VAT on the rents  as the letting would be treated as a separate entity for the purposes of VAT registration.

By Jo Nockels

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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